Warning for South African investors about the US election

South African investors should not try to predict the outcome of the US election and invest based on the potential impact of a Trump or Harris presidency, as the race is simply too close to call. 

This is feedback from Old Mutual Wealth Private Clients’ chief investment officer, Andrew Dittberner, who outlined the uncertainty created by the US election and how investors should respond. 

He emphasised that investors should look past short-term volatility and instead focus on the fundamentals of companies to invest over the longer term. 

With less than a week until Americans head to the polls, the outcome of the presidential race remains highly uncertain. This election cycle has featured several unusual developments, adding to the uncertainty.

Firstly, the Democratic nomination was incredibly brief. Within about 20 minutes of President Joe Biden’s announcement that he would not run for re-election, Vice President Kamala Harris was endorsed as the Democratic candidate. 

This meant that her campaign effectively ran for about three and a half months, far shorter than the typical 18-month campaign. 

Secondly, while the 2016 and 2020 elections were close, the 2024 race is shaping up to be even closer – both nationally and in key battleground states. 

Finally, there is a unique structural challenge. Vice President Harris, a partial incumbent at the moment, must make her case for change while also representing continuity. 

This has historically proven challenging for vice presidents running after serving with their president. Only once in the past 188 years has a vice president, George Bush in 1988, been elected for president. 

It appears that voters look for change, which can make the vice presidency a challenging launch pad for presidential ambitions.

Impact on the markets

Recent market moves suggest that investors are confident of a Trump presidency. However, opinion polls, which are well within historical margins of error, do not fully support this. 

Additionally, Dittberner explained that the structure of the government is crucial as it influences the president’s ability to enact policy. 

If there is a divided government, where different parties control the White House and Congress – made up of the Senate and the House of Representatives – policy outcomes will vary significantly.  

Adding to the uncertainty, investors should not expect an immediate election result after voting day. In 2020, it took about four days to call the race for Joe Biden, and a similar, if not longer, delay is likely this time. 

The policy contrast between the two candidates is stark. Trump would have the freedom to implement inflationary, pro-growth policies that include tax cuts, increased deficit spending and deregulation. 

Given the recent rises in US equities, bond yields, and the dollar, markets may be pricing in this scenario, Dittberner said, suggesting that a Republican win could see a more muted market reaction. 

A Democratic-controlled government would likely pursue higher corporate taxes and increased regulation, which will not be welcomed by equity and currency markets. 

However, increased deficit spending and more open immigration policies could offset this somewhat, while higher taxes could benefit bond markets. This scenario might reverse some of the recent market gains.

While investors may be tempted to position their portfolios based on election expectations, the race is too close to call. 

Furthermore, sectors and industries are influenced by a host of other factors, including earnings outlooks, valuations, and economic prospects. These factors are likely to outweigh politics in the long run.

Sentiment impacts markets in the short term, and we have seen some sentiment-driven shifts as the US’ election day approaches.  

However, policy is impossible to predict for long-term investors, making it challenging to project policy changes onto future earnings expectations. 

Strong third-quarter earnings results have been achieved, and management teams remain focused on delivering fourth-quarter results and 2025 earnings. 

Notably, very few have referenced the election through the latest results season, reflecting their focus on fundamentals, not politics.

“As with past elections, we will not take speculative positions in portfolios based on potential outcomes,” Dittberner said of Old Mutual’s investment position. 

“Rather than attempting to guess the outcome, our objective is to ensure that our clients remain invested in quality businesses that can withstand different economic and political environments.”